Shapeshifting Securities

This essay demonstrates that, because of the flexible definition of “security,” certain interests have the potential to fall in and out of the definition, and thus in and out of securities regulation. This essay coins this potentiality “shapeshifting.” The phenomenon of shapeshifting securities can affect the regulation of interests in traditional business entities, like partnerships and limited liability companies, as well as newer asset types, like digital coins and tokens. And yet, securities regulation—including issuer exemptions, resale exemptions, and regulation of trading platforms—is premised on the assumption that securities do not shapeshift. In other words, securities regulation assumes that an identical interest in the hands of different owners is either a security for all or a security for none and that, if an interest is within the scope of the securities laws, it stays there from issuance through resale and trading. This essay explores this tension